China's iron ore, steel markets unfazed by Strait of Hormuz threats, but outlook dim

China's iron ore and steel markets remained calm on June 23 amid Iran's threats to close the Strait of Hormuz, with iron ore and steel futures prices seeing little change since June 20. Some market sources said that closing the Strait of Hormuz would weaken China's steel exports both directly and indirectly, but for now, the market does not believe Iran will close the vital route.

"We believe the chances of closing the Strait of Hormuz are very small, but we are still closely monitoring the situation...freight costs through this strait may inevitably increase due to higher risk surcharges and insurance premiums," said a trading source.

According to trading sources, China's steel exports to Saudi Arabia, the United Arab Emirates, Iraq, Kuwait, Qatar, and Iran will be directly impacted if the Strait of Hormuz is partially or completely closed.

Saudi Arabia was the largest importer of Chinese steel among Middle Eastern countries over January-May. It imported 2.298 million mt of Chinese steel in the first five months of 2025, up 40.1% year over year, data from S&P Global Trade Analytics Suite showed.

According to traders, roughly half of China's steel exports to Saudi Arabia pass through the Strait of Hormuz, while the rest go via the Bab el-Mandeb Strait.

The exports of Chinese steel to the remaining five Middle Eastern countries totaled 2.803 million mt over January-May, up 4.7% year over year.

As a result, an annualized 9.55 million mt of China's steel exports would be directly hit, accounting for about 8% of China's total steel exports, if the Strait of Hormuz were closed, Platts calculations, based on data from S&P Global Trade Analytics Suite and China customs, showed.

"If the Strait is closed, the adverse impact on China's steel exports will be quite obvious. With domestic demand continuing to decline, a drop in exports would add significant downward pressure on both China's steel prices and production, and thus would also weaken demand for raw materials," said another market participant.

"However, today's iron ore and steel markets remain mostly steady, indicating that there is little expectation for the strait to be closed," added the source.

The outlook for China's steel market in the second half of 2025 stays pessimistic, as domestic steel demand is likely to keep dropping amid a declining property sector. US tariff increases and the escalating conflict between Iran and Israel could also impact global economic growth and overseas steel demand, according to market sources.

The Platts-assessed Chinese domestic hot-rolled coil and rebar prices were Yuan 3,200/mt ($445/mt) and Yuan 3,090/mt, respectively, on June 23, unchanged from June 20.

The most actively traded iron ore September contract on the Dalian Commodity Exchange was up 0.4% at Yuan 706/mt at June 23 close.